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Inflation spike building further upwards

In the coming months prices will go up and inflation will shoot sharply above the target of 3 percent to 6 percent towards the third quarter of 2021, the Bank of Botswana on the other hand will continue to withhold its knife on the Bank Rate. This is according to a forecast made by Kgori Capital in its recent Market Watch Segment.

Statistics from Statistics Botswana show that the recent 1.8 percent increase in the September inflation, from 1 percent in August, was a reflection of the upward adjustment in public transport fares (Transport (from -6.9 to -3.9 percent) in September 2020, which is estimated to have increased inflation by approximately 0.64 percentage points.

[ihc-hide-content ihc_mb_type=”show” ihc_mb_who=”1,2,3″ ihc_mb_template=”1″ ]The increase in inflation between August and September 2020 also reflects the increase in the annual price changes for some categories of goods and services: Housing, Water, Electricity, Gas and Other Fuels (from 6.1 to 6.4 percent); Clothing and Footwear (from 2.3 to 2.5 percent); Miscellaneous Goods and Services (from 0.5 to 0.7 percent); Communication (from 0.5 to 0.6 percent); and Recreation and Culture (from -0.4 to 0 percent).

However, the upward pressure on inflation was partly offset by inflation decreasing with respect to Alcoholic Beverages and Tobacco (from 6.6 to 6.2 percent) and Furnishing, Household Equipment and Routine Maintenance (from 2.2 to 2 percent). Inflation remained stable for: Education (4.7 percent); Food & Non-Alcoholic Beverages (4.2 percent); Restaurants and Hotels (3 percent); and Health (1.5 percent), said Bank of Botswana.

Transport carries the biggest weight in Botswanas Consumer Price Index, 20.65 percent followed by Food and non-alcoholic beverages which accounts for 16.51 percent; housing, water, electricity, gas and other fuels for 14.9 percent and miscellaneous goods and services for 10.55 percent.

The transport sector amasses the heftiest weight in the Consumer Price Index at 23.43 percent, this simply means a slight change in the sector will have an impact on the overall inflation.
Sure the fuel price reductions make it cheaper for them to operate, but they may not be getting as much business as they used to because of Covid regulations. Higher fares are probably aimed at trying to fill that gap to a certain degree, opined Gomolemo Basele, an economist.

Inflation has remained below the central banks target of 3 percent to 6 percent for almost a year. Observers expect it to return within range in the third quarter of 2021. Botswana recorded the lowest level of inflation since records began in January of 1997, from 2.4 percent in May to 0.9 percent in June when a plunge in transport prices (-6.7 percent vs -0.1 percent in May) and a sharp slowdown in costs of alcoholic beverages & tobacco (5.4 percent vs 22.3 percent).

The same inflationary effect remained the same for the following month of July. But inflation has since gained an upward tract since August, something Kgori Capital sees as a trend that will continue to the following year.

But consumer inflation in Botswana has been regarded as stubbornly low. One of the spikers of the recent upward movement in inflation is also the September government workers salary back-pays which were paid after the April deferral. The back-pays are expected to increase household spending and even credit growth in the population.

Economic research says for the remainder of 2020 or 4Q 2020 the headline figure will receive some upward pressure from the demand side due to salary increases for government workers which is expected to be effected in September.

IMF predicts deeper recession and a snails pace recovery from the dark hole

This month International Monetary Fund (IMF) released its highly anticipated gloomy projections with global domestic product to shrink by 4.9 percent, a heavier slant that the expected 3 expected 3 percent in April. The growth rebound movement expected in 2021 was also toned done from the expected 5.8 percent to 5.4 percent.

IMF Chief Economist, Gita Gopinath, said that the cumulative loss for the world economy this year and next as a result of the recession is expected to reach $12.5 trillion. “A high degree of uncertainty surrounds this forecast with both upside and downside risks,” said Gopinath in a recent World Economic Outlook update.

“On the upside, better news on vaccines and treatments and further policy support could trigger a faster recovery. On the downside, further waves of infections can reverse increased mobility in spending and rapidly tighten financial conditions, triggering debt distress.”

While comparing the current coronavirus infected situation with The Great Depression, Gopinath said this because of the current downturn which compares to a loss of about 10 percent of global economic output like it was the case in the 1930s.

According to IMF, more than one million lives have been lost to COVID-19 since the start of the year and the number of deaths continues to rise. Many more have suffered serious illnesses related to Covid-19. Close to 90 million people are expected to fall into extreme deprivation this year. On the positive, according to IMF, the recent data suggest that many economies have started to recover at a faster pace than anticipated after reopening from back to back lockdowns.

We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast. The revision is driven by second quarter GDP out-turns in large advanced economies, which were not as negative as we had projected; Chinas return to growth, which was stronger than expected; and signs of a more rapid recovery in the third quarter.
The uncertainty surrounding the baseline projection is unusually large. The forecast rests on public health and economic factors that are inherently difficult to predict, says the IMF.[/ihc-hide-content]

Business

P300m Phikwe Citrus project first harvest milestone

18th March 2024

The P300 million Selebi Phikwe Citrus project in Botswana has reached its first harvest milestone, with the first export dispatched to the UAE and Saudi Arabia last week. This project, aimed at diversifying the country’s export earnings from diamond mining, is a significant step towards achieving this goal.

The project, which has successfully planted 840,000 seedlings in Phase 1 and completed a 17,000 square meter pack house, is set to employ 1,000 people and create business opportunities across various value chains. These opportunities include manufacturing of juice and packaging materials, transport and logistics, and honey production.

The first export from the Selebi Phikwe Citrus project marks a major achievement for Botswana, as it opens up lucrative export markets in the Middle East and beyond. The project has met market access requirements for countries such as the EU, Canada, China, The Philippines, UAE, and Saudi Arabia, paving the way for future exports to these regions.

The economic impact of the project on the SPEDU region, where it is located, is already being felt. The construction of a 12 km water pipeline and the installation of a power line have driven infrastructure development in the area, benefiting businesses in the vicinity at minimal cost.

The project’s success is the result of collaborative efforts between various government departments and agencies, including the Botswana Investment & Trade Centre (BITC) and SPEDU. Through the BITC’s One Stop Services Centre (BOSSC), the project was able to access red-carpet investor facilitation services and unlock necessary business enablers.

The Ministry of Trade & Industry and the Ministry of Agriculture have played crucial roles in facilitating market access for the project. The Department of Plant Health has opened up protocol and permit markets for citrus exports, ensuring that the project can access international markets with ease.

Botswana has met the European Union (EU), Canada, China, The Philippines, United Arab Emirates and Saudi Arabia market access requirements. “I am happy to report that our desire to export has been actualised as the first consignment was dispatched last week to the United Arab Emirates and Saudi Arabia” Minister Kgafela revealed.

The Selebi Phikwe Citrus project is not only beneficial for the project sponsors but also for other citrus growers in Botswana. With 172 citrus growers in the country, over 90% of whom are small-scale farmers, the project presents opportunities for growth and expansion in the citrus industry.

Massive value chain opportunities are presented by the project, including fertilizer and agrochemical supplies, agro-processing opportunities, and more. The project’s spending on imports presents an opportunity for local production, further boosting the country’s economy.

On 21s March 2024, His Excellency Dr Mokgweetsi EK Masisi will officiate at a ceremony to mark the first harvest of the Selebi Phikwe Citrus project and officially open the pack house. Harvest from this multimillion pula project is expected to reach the United States, Europe and other lucrative export markets.

The project was first launched on the 11th December 2020 with a ground breaking by President Masisi. This multimillion pula private sector funded agricultural enterprise, the likes of which this country has never seen before, is widely touted as a major catalyst to revitalising and catapulting the SPEDU region back to economic glory following the closure of BCL mine in 2016.

The project promoters leased 1500 hectors of land from Mmadinare Multi- Purpose Cooperative Society which will benefit directly through proceeds.

Highlighting the ripple economic impact of the project to the SPEDU region, Assistant Minister of Trade & Industry Honourable Beauty Manake said the Selebi Phikwe Citrus project has been able to drive the development of infrastructure in the area, with the construction of a 12 km water pipeline and ensured the installation of a power line.

She said during a briefing in Gaborone on Thursday that businesses within the vicinity have tapped into these infrastructural developments at minimal cost.

The Selebi Phikwe Citrus project came into being through collective efforts of various government departments and agencies. The Botswana Investment & Trade Centre (BITC) in collaboration with SPEDU courted the investors from South Africa to venture into the project.

Through the Botswana One Stop Services Centre (BOSSC) under the BITC, the project was able to establish and take off by enjoying red-carpet investor facilitation services to unlock required business enablers.

BITC has also through its export promotion arm, facilitated the project by identifying potential export markets in the European Union (EU) and lend crucial support to the Citrus Project to access the identified markets.

About 70 percent of the produce from the Selebi Phikwe Citrus will be exported, while 30% will remain in the country. Assistant Minister Manake revealed that the Ministry of Trade of Industry has been working closely with the project sponsors to explore export markets and facilitate entry into those markets.

The Selebi Phikwe Citrus project’s first harvest and export mark a significant milestone in Botswana’s efforts to diversify its export earnings. With the potential for growth and expansion in the citrus industry, this project is set to have a lasting impact on the country’s economy and agricultural sector.

 

 

 

 

 

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Business

Botswana’s first coal-gas fired power station to start commercial production

18th March 2024

Botswana is set to achieve a significant milestone with the upcoming commencement of commercial production at the country’s first coal-gas fired power station. Tlou Energy Limited, an Independent Power Producer listed on multiple stock exchanges, has been at the forefront of developing this groundbreaking project, which is expected to start generating electricity for both the local and export markets later this year.

Situated in the Central District, just 100 km west of Serowe, the coal-gas fired power station represents a major step towards reducing Botswana’s reliance on expensive power imports. Tlou Energy has confirmed the presence of abundant coal-gas resources in the area, making it suitable for commercial power production. The company has obtained all the necessary approvals, including environmental assessments, production licenses, power generation licenses, and a Power Purchase Agreement, to move forward with the project.

One of the key achievements for Tlou Energy has been the completion of a 100km 66kV transmission line, connecting the power station directly to Botswana’s power grid and the Southern African Power Pool. This connection opens up a vast market for the project, allowing for the sale of electricity both domestically and regionally. The company’s Managing Director, Tony Gilby, expressed optimism about the project’s progress, stating that they are on track to start generating revenue soon.

In terms of the project’s timeline, Tlou Energy is currently focused on completing the construction of the power station, installing generators, and finalizing the gas gathering line. The initial target is to generate around 2MW of power, with plans for rapid expansion to 10MW, generating approximately $10 million in revenue per annum. The company is also in discussions with investors to secure the necessary funds for project completion.

The key remaining items to be completed prior to first power sales, according Tlou Energy, include completing the construction of the power station, installation of generators, completing the short gas gathering line (from the gas wells to the generators) and energizing the power line. “Minor finishing works on the transmission line and the addition of switchgear at Serowe will also be completed prior to first power.  The initial target is ~2MW of power, followed by rapid expansion to 10MW, generating approximately $10m in revenue per annum.” The company has confirmed that it’s in discussions with some investors to secure funds required for project completion.

Tlou’s power is expected to help reduce Botswana’s reliance on expensive power imports. In addition to supplying power in Botswana, the company may sell electricity to the regional market via the Southern African Power Pool, a development which could open up a bigger market for the project.

The successful operation of Botswana’s first coal-gas fired power station will not only contribute to the country’s energy security but also have a positive impact on the regional market. By potentially selling electricity through the Southern African Power Pool, Tlou Energy could tap into a larger market, further solidifying its position as a key player in the energy sector.

Overall, the progress made by Tlou Energy in developing Botswana’s first coal-gas fired power station is a testament to the company’s dedication and vision. With the project nearing completion and commercial production on the horizon, Botswana is poised to enter a new era of energy independence and sustainability.

 

 

 

 

 

 

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Food prices could go up in 2024/2025

18th March 2024

Food prices could potentially go up in 2024/2025 due to the current El Niño conditions in Southern Africa, as reported by the Food and Agriculture Organization (FAO) of the United Nations. The update released by FAO indicates that countries in the region, including Botswana, may experience a decrease in food production, leading to higher food inflation.

The update highlights that Southern Africa has been experiencing below-average rainfall, with key cropping zones in countries such as Malawi, Mozambique, Zambia, Zimbabwe, and Namibia receiving only up to 80 percent of average rainfall quantities between November 2023 and February 2024. This has resulted in significant rainfall deficits, particularly in February, which is a critical period for crop development. The warmer than average temperatures and erratic distribution of rains have further exacerbated the situation, leading to stressed vegetation conditions and potentially lower crop yields in 2024.

In South Africa, the leading cereal producer in the region, a dry spell between late January and February 2024 has negatively impacted crop production prospects. Maize production is expected to fall this year, further contributing to the potential decrease in cereal production in the region.

As a result of the anticipated decline in cereal production in Southern Africa, import needs are projected to increase in the 2024/25 year. This could lead to the importation of cereals from outside of the region, such as the United States of America, Mexico, Brazil, Australia, and Argentina. However, importing food from global markets comes with higher transport costs and import tariffs, which may put upward pressure on food prices in Botswana.

FAO projects that based on the likely scenario of a fall in cereal production in Southern Africa, import needs are set to increase in the 2024/25 year. “Furthermore, if production declines in South Africa and Zambia materialize in 2024, cereal export availabilities in the region would be low and this could necessitate the importation of cereals from outside of Southern Africa.” According to analysts from the organization cereal prices were at higher levels in December 2023 and January 2024 in Southern Africa, reflecting the cumulative impacts of weather shocks on 2023 domestic production, elevated international commodity prices and weak currencies that intensified exchange rate pass-through effects to domestic prices. “Farther ahead, a key risk to the price growth is represented by the impact of El Niño-related rainfall deficits on cereal production in 2024.”

Some local analysts believes that Botswana could import sorghum, maize and wheat from as far as United States of America, Mexico, Brazil, Australia and Argentina as South Africa and Southern African countries which are potential suppliers of cereals, are highly likely to record decline in crop production as a result of the impact of El Niño-related rainfall deficits on cereal production in 2024. The analysts added that food imports from the global markets come with higher transport costs and import tariffs which may have an upward pressure on food prices in Botswana.

Overall, the impact of El Niño-related rainfall deficits on cereal production in 2024 poses a significant risk to food prices in the region. It is important for policymakers and stakeholders to closely monitor the situation and take necessary measures to mitigate the potential increase in food prices in 2024/2025.

 

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